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Calculating the Value of Energy Storage

Key Points

The Electric Power Research Institute (EPRI) developed an energy storage evaluation methodology and created simulation software that can be used to evaluate the potential cost effectiveness of energy storage under customizable assumptions.

The Energy Storage Valuation Tool (ESVT) was used to evaluate the cost effectiveness of storage in three broad use cases under 31 separate scenarios for the California Public Utilities Commission (CPUC).

Under the assumptions provided by the CPUC, nearly all of the 31 use cases returned a benefit-cost ratio greater than one, indicating cost effectiveness.

However, the storage cost targets used in the modeling have not been reached

Given business realities and regulatory hurdles, a storage owner may find it difficult to monetize all the benefits of storage.

The EPRI analysis provides a break-even cost for each storage scenario, which the utilities can use as a benchmark for cost effectiveness and the storage industry can use as a goal.

Background

EPRI’s aim was to provide a tool that is easy to use but contains sufficient detail to make decisions about where to site storage, what storage technologies to use, and what services storage should provide. The software is free to EPRI members who participate in the storage program; for others, the fee is $4,000. [Contact Ben Kaun of the EPRI Energy Storage Program, bkaun@epri.com for more information].

Energy storage does not fit easily into normal regulatory patterns because it can exhibit characteristics of generation, transmission and distribution, making it difficult to compare with other resources. EPRI’s simulation software, known as the Energy Storage Valuation Tool (ESVT), allows utilities use to make a preliminary assessment of the value of storage in specific situations. The ESVT provides a “first cut” at a benefit-cost ratio before performing resource-intensive system modeling, which is warranted only if projects have a reasonable chance of being “in the money.”

The California Public Utilities Commission approached EPRI about using its research to help them investigate the potential cost-effectiveness of energy storage. EPRI agreed to evaluate a number of scenarios using assumptions provided by the CPUC, informed by a core stakeholder group containing energy storage advocates and the three California investor-owned utilities.

“Stacking” the Benefits of Grid Services

EPRI’s approach takes into account the variety of services that energy storage can provide to the grid and then places a value on those services. The benefits include T&D upgrade deferral, system capacity, energy time-shift (storing energy when it is cheap and selling it when the price is higher), spinning reserve and frequency regulation.

It is possible for a single storage system to provide more than one service. For example, a storage system used primarily for T&D deferral on peak load days can also provide significant amounts of frequency regulation. Further, storage can sell its charging and discharging capacity into the Regulation Up and Regulation Down markets, essentially doubling its capacity for regulation services.

However, stacking the benefit of energy storage as a simple sum does account for the business realities of the grid. Not all of the evaluated services could be provided simultaneously, and the ability to provide the highest value service might be constrained by previous commitments. For example, providing T&D deferral could inhibit the ability to provide frequency regulation service when it is needed. As a result, the simple sum of benefits shown above does not reflect operational and regulatory reality, and the realizable revenue potential is lower than the theoretical potential.

Summary of “Use Case” Results

EPRI relied on CPUC staff, with advice from the three California utilities and the California Energy Storage Alliance, to develop a number of high-priority storage “use cases.” The CPUC focused on three broad categories - two transmission storage categories (bulk storage and ancillary services) and one distribution-level category (distribution storage at a utility substation).

Each use case was analyzed with a number of key technology cost and performance assumptions (as provided by the CPUC) for the years 2015 and 2020. For example, the base case for bulk storage in 2020 assumed a 50-megawatt, two-hour battery with a capital cost of $1,056 per kilowatt and 83 percent roundtrip efficiency. By comparison, the Sandia Labs Electricity Storage Handbook provides cost estimates (p. 81) of 50-megawatt, five-hour lead-acid batteries from four different vendors ranging from nearly $4,000 to more than $8,000 per kilowatt. Clearly the cost provided by the CPUC is an aggressive goal.

Nearly every use case had a benefit-to-cost ratio greater than one, which indicated cost effectiveness under the given assumptions. Those cases where the storage system had a high capital cost or required several battery replacements produced a benefit-cost ratio less than one. In its presentation to the CPUC, EPRI also noted that the “cost targets for storage defined in these scenarios have yet to be achieved.”

Frequency regulation proved to be a very important source of revenue. In the base case, revenues from regulation made up more than half of the total. In providing regulation services, energy storage displays some competitive advantages: storage resources are generally fast, accurate and ramp quickly. However, it may be difficult for regulated utilities to monetize this value. For example, a regulated utility may encounter problems in trying to sell high-value regulation services in a deregulated market such as exists in California.

An additional issue with frequency regulation value is that the demand for this service is thin; even an electric system as large as California’s only requires a limited amount of regulation service, perhaps 200-300 megawatts up and down per hour. Additional energy storage might not be able to benefit from selling regulation services in a saturated market and would have to rely on other revenue sources. Also, in areas where there is no well-defined competitive market such as California’s, it may be difficult for utilities to place a firm value on ancillary services.

In the distribution use cases, the most important factor was to defer distribution investment as long as possible by keeping the peak load below a designated target. Deferring distribution investment typically required only a few hours per year of dispatching storage, depending on the load shape and the rate of load growth.

Commentary

EPRI stresses that the CPUC and the stakeholders – the three utilities and the California Energy Storage Alliance (CESA) – were responsible for the inputs for the California study. EPRI took the values provided and performed the analyses. In actual practice, CESA was much more active with management of the data gathering process, and in providing cost and performance data than the utilities. The cost and performance data may seem optimistic to some observers, and a vast majority of the use cases showed a favorable benefit/cost ratio.

For the electric utilities, the EPRI study provides a useful benchmark for a wide variety of energy storage scenarios. For each scenario or use case, the study calculates not just a benefit/cost ratio, but also provides a break-even installed cost for the storage case, which is the threshold storage cost resulting in a benefit/cost ratio equal to one. This break-even cost gives the utilities a benchmark for evaluating storage offers. If the offers from vendors and developers, as well as costs for utility-owned storage, fall short of the benchmark, the utilities will have a stronger argument that the targets should be delayed until storage costs decline and/or performance improves. Storage vendors may find the benchmarks to be equally useful as goals for their products.